Fans of day trading, buying and selling on the same day, make predictions in a variety of ways:
- News: keep up to date through social networks, news sites, project and developer blogs, newspapers, economic data, as well as launches, partnerships and updates; seek to be the first to react to these events and expectations.
- Correlation: they look for assets that move in line with Bitcoin, at least in the very short term, for example, gold, shares of Chinese companies, dollar index (DXY), US Treasury bond rates, among others; this trend can be in the same direction, or opposite. You should understand what’s the correlation? Keep an eye on the expanding markets. For instance, why did people start investing and trusting Bitcoin? It’s because companies accepted Bitcoin as a payment option. So, the market grew bigger and demand increased logically.
- Technical analysis: based exclusively on information from the historical record of transactions, purchases and sales; they bet that past trends will repeat themselves, creating possible scenarios according to each pattern. Therefore, the Bitcoin forecast, even for the very short term, depends on which approach is being used.
How is it possible to predict the price of Bitcoin?
Unlike graphical analysis and the use of technical indicators, fundamentalist analysts seek to understand the reasons that lead to the purchase of Bitcoin, how to use it, and how this user network grows.
- It is common to use mathematical and statistical models in Bitcoin prediction.
- They may involve the history of similar assets such as gold.
- Some use the email or smartphone adoption curve, for example.
- There is a rationale for this estimate, at least a historical correlation.
- It is not possible to say that such models will continue to work.
Some of these Bitcoin predictions have been pretty accurate in the past, coming very close to price for several months. However, as it is an asset with high volatility, whose price varies very aggressively, it is almost impossible to accurately predict its price.
Bitcoin Prediction Model: Stock to Flow (S2F)
Created by a pseudonym, PlanB, this model compares the production, or flow, of Bitcoin against the quantity already issued, known as stock. The model indicates how many years it takes to rebuild everything that has been produced to date.
- The higher the indicator, the scarcer the asset.
- 6.25 Bitcoins are produced for each block found, which takes about 10 minutes; this equates to 328,500 new coins per year.
- To find out how many Bitcoins exist on 23/Nov/2021, we can check through the software (node) that maintains historical data: 18,881,237 coins in circulation.
- Thus, Bitcoin’s Stock to Flow is 18,881,237 / 328,500 = 57.5 times.
When analyzing this same measurement for gold, for example, we find 195 thousand tons of the precious metal have already been mined, compared to an annual production of 3 thousand tons. Therefore, the S2F of gold is 195 / 3 = 65